CCMDUOPHARMABIOTECHBHD

AnalysisDate:

29/08/2013

(CCMDBIO)

Preparedby:

L.C.Chong

AllfiguresinthousandsofRinggitMalaysiaexceptpersharevaluesandratios
FinancialYear:

201231/12/2012

Price:
Overview

StockCategory:
EmergingInvestmentGrade
2.44
CCMDuopharmaBiotechBerhad,aninvestmentholdingcompany,engagesinthemanufacture,distribution,import,and
exportofpharmaceuticalproductsandmedicinesinMalaysia.Itprovidesvariousoverthecounterproducts,suchas
analgesic/antipyretics,antibacterialmouthwashproducts,childrensvitamins,coughpreparations,dermatology
products,eyedrops,firstaiddressings,healthsupplements,painrelievers,andhandsanitizers.Thecompanyoffersits
productsinvariousforms,suchastablets,capsules,syrups,oralantibiotics,creams,haemodialysissolutions,sterile
irrigationsolutions,sterilepowderinjectables,smallvolumeinjectables,dentalcartridges,andeyedroppreparations.
CCMDuopharmaBiotechBerhadexportsitsproductstoVietnam,Ethiopia,Sudan,SoutheastAsia,PapuaNewGuinea,
Pakistan,Bangladesh,SriLanka,theRepublicofYemen,Singapore,andHongKong.Thecompanywasfoundedin1979
andisbasedinKlang,Malaysia.CCMDuopharmaBiotechBerhadisasubsidiaryofCCMMarketingSdn.Bhd.

LatestQuarter:

Board:

MainBoard

Industry:

CONSUMERPRODUCTS

SubSector:

PHARMACEUTICALS

Ownership:

CorporateOwned(Local)

FBMKLCI:

31/12/2012

NO

InvestmentStrategy
PortfolioStrategy:

LumpSum+TopUp

PortfolioExecution:

BuyandMonitor

BasisforBuying:

Companyowner/directors,andmajorfundinstitutionsheavilybuying
EPSQoQGrowth>15%
Stockpricebreaksoutofconsolidation/diponanuptrend.

BasisforSelling:

Companyowner/directors,andmajorfundinstitutionsheavilyselling
Fundamentalofbusinessturnsunattractiveorbad
Longtermtrendchangedfrombullishtobearish
QuarterlyEPSdropfor3consecutivemonths.
Thecurrentpriceis30%awayfrommyaverageholdingprice.

L.C.Chong

AveragingDownMethod:

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DollarCost/ValueAveraging

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FinancialPerformance
Rating:

SustainableProfitability

Measure

30%

VeryGood
3YAvg.

5YAvg.

3Y%

5Y%

Consistency

ROE15%

16.11%

16.90%

8.71%

9.04%

12%

25%

ROIC15%

16.53%

17.40%

3.78%

9.28%

45%

20%

AlthoughROEandROICareslightlyabovemybenchmark,bothratioshavebeen
decreasingsince2008.Thepossiblereasonisincreaseofproperty,plantand
equipment(buildingsandplant/machineries).Therefore,Iamnotsoworryabout
thisproblem.

15%
10%
5%
0%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

ROE

19%

21%

17%

20%

28%

21%

21%

18%

16%

15%

ROIC

21%

23%

26%

28%

28%

22%

22%

18%

16%

16%
Rating:

Earnings GrowthQuality
160,000
0.4178

140,000
0.3448

120,000
100,000

0.5

0.4618

0.4356
0.3948

0.45

0.413
0.3848

0.3508

0.3748

0.2953

YoY%

3Y%

5Y%

10Y%

Consistency

Revenue

2.04%

1.45%

3.03%

7.01%

94%

0.4

EPS

2.60%

4.85%

2.28%

2.24%

24%

0.35

Consistentgrowthofrevenue,butnetincomeisdecreasingduetohigheroperating
expenses.Thus,EPSisalsodroppinggradually.

0.3

80,000

0.25

60,000

0.2
0.15

40,000

0.1

20,000

0.05
0

0
2003

2004

PARAdjustedEPS
L.C.Chong

Result

Average

2005

2006
Revenue

2007

2008

2009

2010

Linear(PARAdjustedEPS)

2011

2012

Linear(Revenue)
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Rating:

Average

HealthyCashFlow
300

30%

250

25%
20%

200

15%

150

10%

100

5%

50

0%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

CROIC

16%

16%

18%

25%

15%

17%

2%

10%

7%

18%

CCC

150

148

152

165

187

211

243

212

216

237

Measure

5YAvg.

3Y%

5Y%

Consistency

CROIC15%

13.33%

12.33%

32.02%

14.46%

18%

CCC

225.89

226.84

5.53%

1.22%

84%

From2009to2011,CROICisbelowmyexpectationbecauseofhighercapex.In
2012,itsCROICreturnsto18%.
MyconcernisCCChasbeenincreasingthroughouttheyearsbecauseofincreaseof
inventory.AnotherproblemisIn2012,inventoriesamountingtoRM4,327,000
(2011:RM2,413,000;2011:RM2,896,000)werewrittenoff.Thewriteoffis
includedincostofsales.Theirinventorymanagementisprobablyquitepoor.

Rating:

CashFlow Growth Quality

3YAvg.

45,000

Result

40,000

Ops.Cash

Average
YoY

3Y
98.71%

5Y
1.98%

10Y
4.10%

Consistency
5.30%

40%

Owner
3.43%
54.13%
7.76%
0.50%
0%
Earnings
Inlongterm,trendofnetoperatingcashflowisup,buttrendofownerearningsis
basicallyflat.Lowerofownerearningsin2009and2010wascausedbyhigher
capex.

35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2003

L.C.Chong

2004

2005

2006

2007

2008

2009

2010

NetOps.Cash

OwnerEarnings

Linear(NetOps.Cash)

Linear(OwnerEarnings)

2011

2012

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Rating:

Average

SustainableCompetitiveAdvantage
Measure

35%

NPM10%
30%

3YAvg.
19.74%

5YAvg.

3Y%

20.37%

5Y%
6.31%

Consistency
5.31%

57%

FCF/Sales
15.79%
14.37%
35.30%
20.47%
7%
5%
Increasingcostofsalescausesdecreasingnetprofitmargin.EvenifCCMDBIOs
NPMiswayabovemybenchmark,buttheyshouldstrengthenthewaythey
managerawmaterialandinventories.

25%
20%
15%
10%
5%
0%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

NPM

24%

29%

25%

28%

28%

22%

24%

22%

19%

19%

FCF/Sales

16%

17%

17%

22%

14%

16%

2%

11%

9%

22%

Rating:

ConservativeDebt
1200%

Measure
DCR150%

1000%

Excellent
3YAvg.
349.07%

5YAvg.
201.50%

Debt/Eqty.<
18.94%
19.01%
100%
QuickR.
227.38%
250.16%
100%
apictureworthathousandwords

800%
600%

3Y%

5Y%

Consistency

102.84%

74%

20.77%

0.58%

64%

4.29%

15.89%

52%

400%
200%
0%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0%

0%

0%

0%

0%

0%

17%

76%

115%

598%

Debt/Equity

9.54%

9.76%

7.69%

9.34%

QuickR.

477%

582%

972%

768%

DCR

L.C.Chong

11.49% 15.19% 21.46% 24.46% 20.11% 16.14%

461%

383%

366%

255%

200%

234%

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EconomicMoats
Notavailableornomoatfound

CostAdvantage

Notavailableornomoatfound

SwitchingCosts

Notavailableornomoatfound

NetworkEffect

Notavailableornomoatfound

IntangibleAssets

Notavailableornomoatfound

EfficientScale

Reference:

L.C.Chong

http://lcchong.files.wordpress.com/2013/07/cpv30n29.pdf

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MarketTiming
DiscountedCashFlowsValuation
3Y
Good9%

Base5%

5Y

Bad1%

Ugly3%

Good9%

Base5%

10Y

Bad1%

Ugly3%

Good9%

Base5%

Bad1%

Ugly3%

FairValue

3.03

2.74

2.47

2.22

3.15

2.75

2.38

2.06

3.32

2.71

2.22

1.82

BuyUnder

2.19

1.98

1.78

1.60

2.28

1.98

1.72

1.49

2.40

1.96

1.60

1.32

19.60%

11.00%

1.16%

10.12%

22.64%

11.13%

2.37%

18.22%

26.47%

10.07%

9.85%

33.90%

ActualM.O.S.
ReferAppendix1

GrowthrateappliedinReverseDCFtoreachthecurrentstockprice(2.44):

ReferAppendix2

2%

EY%Valuation
EY%High

EPSQoQGrowth

EY%Low
9.79%

Buffer
6.68%

R4QEPS

FY13EPS*

FY14EPS*

Jun12

10%

0.21

0.18

0.18

FairValue

3.20

2.75

2.69

BuyUnder
SellAbove

2.26
3.06

1.94
2.63

1.90
2.57

Sep12
0.050

Dec12
0.046

Mar13
0.043

Jun13
0.048

QoQ%
0.077

55.56%

ReferAppendix3

InsiderTrading

Comments

ReferAppendix4

ForCCMDBIO,Iwillprobablylookinto3yearshorizon.BasedontheDCFandEY%valuation,
CCMDBIOisslightlyundervalued.
IfcompareCCMDBIOtoAHEALTH,IstillpreferAHEALTHasfundamentalofAHEALTHismuch
strongerthanCCMDBIO.Besides,AHEALTHgotsomeeconomicmoatsthatCCMDBIOlackof.

Acquired
#Securities

Price

29/03/2012

10,000

2.38

07/03/2012

5,000

2.30

14/12/2011

3,000

1.95

13/12/2011

6,000

1.99

GrandTotal

24,000

2.16

L.C.Chong

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Notes
CreatedDate

Type

SourceType

05/08/2013 AlthoughCCMDBIOisveryrichwithcashflowandverystrongingeneratingcashflowfromearnings,CCMDBIOloss
momentuminearnings.Itislessattractiveasofnowevenifrichincashflow.IwillputCCMDBIOinReserveListfirst.

Details

Note

05/08/2013 Growthininventoryoutoflinewithsalesgrowthordaysinventoryincreasingovertime.
CashConversionCycleandDaysInInventoryincreasedinthepastfewyears.
05/08/2013 VerylittlecoverageaboutCCMDBIOinnewspaperandanalystreport

RedFlag

Note

31/05/2013 STABLEPROSPECTSFORTHECOMINGYEAR
Outlook
TheGrouplooksforwardtostableprospectsforthepharmaceuticalindustryin2013.Itsaidinfilingsthat"...thedefensive
natureoftheindustryaugurswellforthegroup,althoughtofftakeofdemandmayfluctuateespeciallyforsupplyto
governmenthospitalsviatenderbusiness....".

AnnualReport

http://klsenew.klsetracker.com.my/briefdisplay.php?bid=211313

L.C.Chong

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Appendix1DiscountedCashFlowsValuation
DiscountRate

MarginofSafety

Averagerisk AverageRisk Unadjusted

BusinessRisk FinancialRisk Discount%
premium
freerate
Discount%
Factor
Factor
0.90
1.03
10.20%
7.60%
3.44%
11.04%

InitialRRR

DividendYield Est.EPS
Growth
35%
6%

Unadjusted
RiskBased
MOS
MOS
5%
28%
30%
2%

GrowthEstimation

FinancialFigures
7

Owner
Terminal%
DecayRate
ExtraDecay
EarningsGR.
(Yr4EYr7E)
(Yr8EYr10E)
8%
3%
15%
20%

SharesOut.

9%

FCFType

75

21

57

2012Owner ExcessCash
Intangibles
Intangibles%
Earnings
Assets
addtoDCF
24.39
14.14
0.00
0%

139.48 Owner
Earnings

1%
3%

5%

61

ProjectionofFutureFreeCashFlowandFairValue
2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

25.61

26.89

28.23

28.81

30.03

31.31

32.64

31.87

32.95

34.07

DPV

332.40

316.71

301.76

279.39

264.31

250.03

236.53

209.57

196.64

184.50

PV

369.78

376.23

382.38

379.54

382.93

386.14

389.18

376.87

377.68

378.45

3Y:

2.74

5Y:

2.75

10Y:

2.71

Senario

Ba

se
5

FV

FairValue

Go
od

9%

FV

26.58

28.98

31.59

32.75

35.26

37.96

40.86

39.23

41.63

44.18

DPV

345.06

341.30

337.58

317.66

310.31

303.13

296.11

257.96

248.41

239.21

PV

383.32

403.42

423.31

425.60

439.94

453.95

467.63

447.51

455.33

462.85

3Y:

3.03

5Y:

3.15

10Y:

3.32

24.63

24.88

25.13

25.23

25.44

25.66

25.88

25.75

25.92

26.10

DPV

319.73

293.04

268.57

244.69

223.93

204.93

187.54

169.32

154.69

141.33

PV

356.23

350.02

344.33

337.55

332.45

327.77

323.49

317.12

313.30

309.82

3Y:

2.47

5Y:

2.38

10Y:

2.22

22.95

22.26

22.00

21.43

20.26

19.85

FairValue

Ba

d
1

FV

FairValue

Ug
ly
3
%

FV

L.C.Chong

23.66

20.89

20.36

20.68

DPV

307.07

270.29

237.91

213.32

188.64

166.81

147.51

136.01

120.90

107.47

PV

342.68

324.79

309.05

299.37

287.88

277.72

268.73

266.73

260.07

254.16

3Y:

2.22

5Y:

2.06

10Y:

1.82

FairValue

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Appendix2ReverseDiscountedCashFlows
DiscountRate

MarginofSafety

Averagerisk AverageRisk Unadjusted

BusinessRisk FinancialRisk Discount%
premium
freerate
Discount%
Factor
Factor
7.60%
3.44%
11.04%
0.90
1.03
10.20%

InitialRRR

GrowthEstimation

FinancialFigures
7

Owner
Terminal%
DecayRate
ExtraDecay
EarningsGR.
(Yr4EYr7E)
(Yr8EYr10E)
8%
3%
15%
20%

SharesOut.

DividendYield Est.EPS
Growth
35%
6%

61

FCFType

75

21

57

2012Owner ExcessCash
Intangibles
Intangibles%
Earnings
Assets
addtoDCF
24.39
14.14
0.00
0%

139.48 Owner
Earnings

2%

Unadjusted
RiskBased
MOS
MOS
2%
30%
28%

ProjectionofFutureFreeCashFlow(GR.2%)

FV

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

24.88

25.38

25.88

26.09

26.53

26.99

27.44

27.17

27.54

27.92

DPV

322.90

298.87

276.63

253.04

233.52

215.51

198.89

178.69

164.36

151.17

PV

359.61

356.48

353.58

347.68

344.49

341.54

338.82

331.12

328.28

325.66

3Y:

2.53

5Y:

2.47

10Y:

2.33

FairValue

L.C.Chong

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Appenfix3EY%Valuation
EY%High

EY%Low

9.79%

Buffer

6.68%

R4QEPS

FY13EPS*

FY14EPS*

10%

0.21

0.18

0.18

FairValue

3.20

2.75

2.69

BuyUnder

2.26

1.94

1.90

SellAbove

3.06

2.63

2.57

*EstimationsfromReutersorlocalanalysts'reports
EY%

Price

High

Low
GreenZoneEY%

9.79%

TradingRange

RedZoneEY%

GreenZonePrice($)

FY13

FY14

2.18

1.88

1.84

9.48%

BuyUnder

2.26

1.94

1.90

10%

6.99%

SellAbove

3.06

2.63

2.57

10%

3.20

2.75

2.69

3.11%

6.68%

RedZonePrice($)

Low

L.C.Chong

R4Q

High

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Appendix4InsiderTrading
Last3monthsorlast30insidertransactions
TransactionDate

L.C.Chong

SecuritiesHolder

Typeoftransaction

Noofsecurities

PriceTransacted

29/03/2012 HajiGhazalibinAwang

Acquired

10,000

2.38

07/03/2012 HajiGhazalibinAwang

Acquired

5,000

2.30

14/12/2011 TanSriDato'DrAbuBakarbinSuleiman

Acquired

3,000

1.95

13/12/2011 TanSriDato'DrAbuBakarbinSuleiman

Acquired

6,000

1.99

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